Notes to Financial Statements
(Unaudited)
(1) Nature of Business and Liquidity
Annovis Bio, Inc. (the “Company”
or “Annovis”) was incorporated on April 29, 2008, under the laws of the State of Delaware. Annovis is a clinical-stage
drug platform company addressing neurodegeneration such as Alzheimer’s disease (“AD”), Parkinson’s disease
(“PD”) and Alzheimer’s disease in Down syndrome (“AD-DS”). The Company’s lead compound, ANVS401,
is a small molecule administered orally that attacks neurodegeneration by entering the brain and inhibiting the translation of
multiple neurotoxic proteins thereby improving axonal transport.
Since its founding, the Company has been
engaged in organizational activities, including raising capital, and research and development activities. The Company has not generated
substantial revenues and has not yet achieved profitable operations, nor has it ever generated positive cash flows from operations.
There is no assurance that profitable operations, if achieved, could be sustained on a continuing basis. The Company is subject
to those risks associated with any clinical stage pharmaceutical company that has substantial expenditures for research and development.
There can be no assurance that the Company’s research and development projects will be successful, that products developed
will obtain necessary regulatory approval, or that any approved product will be commercially viable. In addition, the Company operates
in an environment of rapid technological change and is largely dependent on the services of its employees and consultants. Further,
the Company’s future operations are dependent on the success of the Company’s efforts to raise additional capital.
The Company has a history of incurring net
losses and had an accumulated deficit of $9,218,618 as of March 31, 2020. The Company anticipates incurring additional losses
until such time, if ever, that it can generate significant revenue from its product candidates currently in development. The Company’s
primary source of capital has been the issuance of equity securities.
On January 28, 2020, the Company announced
the pricing of its initial public offering (the “IPO”) of 2,000,000 shares of its common stock at an initial offering
price of $6.00 per share. In addition, the Company granted the underwriters a 45-day option to purchase up to an additional 300,000
shares of common stock at the public offering price. The Company’s common stock commenced trading on the NYSE American on
January 29, 2020 under the ticker symbol “ANVS”. The IPO closed on January 31, 2020 at which time the underwriters
exercised their option to purchase 300,000 additional shares of the Company’s common stock bringing the total number of shares
of common stock sold by the Company to 2,300,000 shares. The gross proceeds from the IPO, including proceeds from the
exercise of the underwriters’ option to purchase additional shares, were approximately $13.8 million. The net proceeds
of the IPO were approximately $12.0 million after deducting underwriting discounts, commissions and offering expenses payable by the
Company, including offering costs paid in 2019 and offering costs accrued and unpaid as of March 31, 2020. In conjunction with
the IPO, the Company granted the underwriters 100,000 warrants to purchase shares of Company common stock at an exercise price
of $7.50 per share, which is 125% of initial public offering price. Upon the closing of the IPO, outstanding redeemable convertible
preferred stock and convertible promissory notes converted into shares of Company common stock totaling 4,117,089 and 118,470,
respectively.
As of the date these financial statements
are issued, management believes that the net proceeds from the Company’s initial public offering, grant funding and the current
cash and cash equivalents are sufficient to fund operations and capital requirements for at least the next 12 months. The Company
will need to raise additional capital to complete clinical development of and to commercially develop its product candidates. There
is no assurance that such financing will be available when needed or on acceptable terms.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation of Interim Unaudited Financial
Statements
The interim financial statements
included herein are unaudited. In the opinion of management, these statements include all adjustments, consisting only of
normal, recurring adjustments, necessary for a fair presentation of the financial position of Annovis at March 31, 2020, and
its results of operations and its cash flows for the three months ended March 31, 2020 and 2019. The interim results of
operations are not necessarily indicative of the results to be expected for a full year. These interim unaudited financial
statements should be read in conjunction with the audited financial statements for the year ended December 31, 2019 and
notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The
accompanying financial statements have been prepared in conformity with U.S. generally accepted accounting principles
(“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”).
Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP as found in the Accounting Standards
Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards
Board (“FASB”). Certain information and note disclosures normally included in financial statements prepared in
accordance with U.S. GAAP have been omitted pursuant to such rules and regulations relating to interim financial
statements.
Annovis Bio, Inc.
Notes to Financial Statements
(Unaudited)
(b) Use of Estimates
The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities, including disclosure of contingent assets and liabilities, at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Due to the uncertainty of factors surrounding the estimates or judgments
used in the preparation of the financial statements, actual results may materially vary from these estimates.
Significant items subject to such estimates
and assumptions include share-based compensation expense, the valuation of the derivative liability and contingent liabilities.
Future events and their effects cannot be predicted with certainty; accordingly, accounting estimates require the exercise of judgment.
Accounting estimates used in the preparation of these financial statements change as new events occur, as more experience is acquired,
as additional information is obtained and as the operating environment changes.
(c) Basic and Diluted Net Income (Loss) per Share
Basic net income (loss) per share is determined
using the weighted average number of shares of common stock outstanding during each period. Diluted net income (loss) per share
includes the effect, if any, from the potential exercise or conversion of securities, such as redeemable convertible preferred
stock, convertible promissory notes, warrants and stock options, which would result in the issuance of incremental shares of common
stock. The computation of diluted net income (loss) per shares does not include the conversion of securities that would have an
anti-dilutive effect.
(d) Cash and Cash Equivalents
The Company considers all highly liquid
investments with original maturities of three months or less to be cash equivalents. At times, the Company’s cash balances
may exceed the current insured amounts under the Federal Deposit Insurance Corporation (“FDIC”). Total cash was $11,120,465
and $1,858 as of March 31, 2020 and December 31, 2019, respectively.
(e) Offering Costs Associated with IPO
Included in long-term assets as of March
31, 2020 and December 31, 2019, were deferred offering costs of $0 and $369,595, respectively, incurred in connection with our
IPO which primarily consisted of direct incremental legal, printing, listing and accounting fees. Offering costs of $601,635 were
offset against proceeds received in the IPO in the three months ended March 31, 2020 and charged to additional paid-in capital.
Of these offering costs, $50,000 was accrued as of March 31, 2020 and $78,611 was paid during the year ended December 31, 2019.
(f) Fair Value of Financial Instruments
The Company’s financial instruments
include cash and cash equivalents, accounts payable, accrued expenses, a derivative liability and debt. Cash and cash equivalents
and the derivative liability are reported at fair value. The recorded carrying amount of accounts payable and accrued expenses
reflect their fair value due to their short-term nature. The carrying value of the interest-bearing debt approximates fair value
based upon the borrowing rates currently available to the Company for loans with similar terms and maturities.
Annovis Bio, Inc.
Notes to Financial Statements
(Unaudited)
(g) Research and Development
Research and development costs are expensed
as incurred and are primarily comprised of external research and development expenses incurred under arrangements with third parties,
such as contract research organizations and consultants. At the end of each reporting period, the Company compares the payments
made to each service provider to the estimated progress towards completion of the related project. Factors that the Company considers
in preparing these estimates include the number of patients enrolled in studies, milestones achieved, and other criteria related
to the efforts of its vendors. These estimates will be subject to change as additional information becomes available. Depending
on the timing of payments to vendors and estimated services provided, the Company will record net prepaid or accrued expenses related
to these costs.
(h) Grant Income
Grants received are recognized as grant
income in the statements of operations as and when they are earned for the specific research and development projects for which
these grants are designated. Grants payments received in excess of grant income earned are recognized as deferred grant on the
balance sheets and grant income earned in excess of grant payments received is recognized as grant receivable on the balance sheets.
(i) Share-Based Compensation
Share-based compensation cost is measured
at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is
generally the vesting period. Forfeitures are recognized in compensation expense in the period when they occur.
Determining the appropriate fair value of
share-based awards requires the use of subjective assumptions, including the fair value of the Company’s common shares, and
for options, the expected life of the option and expected share price volatility. The expected life of options was estimated using
the simplified method, as the Company has limited historical information to develop reasonable expectations about future exercise
patterns and post-vesting employment.
The Company uses the Black-Scholes option
pricing model to value its option awards. The assumptions used in calculating the fair value of share-based awards represent management’s
best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change
and management uses different assumptions, share-based compensation expense could be materially different for future awards.
Upon exercise of stock options, the Company
issues shares first from treasury stock, if available, then from authorized but unissued shares.
(j) Income Taxes
The Company provides for income taxes using
the asset and liability approach. Deferred tax assets and liabilities are recorded based on the differences between the financial
statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. Deferred
tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized.
The Company is subject to the provisions
of ASC 740, Income Taxes, which prescribes a more likely-than-not threshold for the financial statement recognition of uncertain
tax positions. ASC 740 clarifies the accounting for income taxes by prescribing a minimum recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
There are currently no open federal or state tax audits.
Annovis Bio, Inc.
Notes to Financial Statements
(Unaudited)
(k) Recent Accounting Pronouncements
In March 2018, the FASB issued ASU
2018-5—Income Taxes (Topic 740): Amendments to SEC Paragraphs pursuant to SEC Staff Accounting Bulletin No. 118. This
ASU provided guidance related to Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 118
(“SAB 118”), which addresses the accounting implications of the Tax Cuts and Jobs Act of 2107 (the “Tax
Act”). SAB 118 allows a company to record provisional amounts during a measurement period not to extend beyond one year
of the enactment date and was effective upon issuance. The Company has analyzed the Tax Act, and in certain areas, has made reasonable
estimates of the effects on its financial statements and tax disclosures.
In August 2018, the FASB issued ASU
No. 2018-13, Fair Value Measurement (Topic 820)—Disclosure Framework—Changes to the Disclosure Requirements for
Fair Value Measurement. The new guidance improves and clarifies the fair value measurement disclosure requirement of ASC 820. The
new disclosure requirements include the changes in unrealized gains or losses included in other comprehensive income for recurring
Level 3 fair value measurement held at the end of reporting period and the explicit requirement to disclose the range and
weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The other provisions
of ASU 2018-13 also include eliminated and modified disclosure requirements. The guidance is effective for fiscal years beginning
after December 15, 2019 with early adoption permitted. The adoption of ASU 2018-13 in the first quarter of 2020 did not have
a significant impact on the Company’s financial statements.
In
December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income
Taxes. The amendments in ASU 2019-12 simplify the accounting for income taxes by removing certain exceptions to the general
principles in Topic 740 and clarifying and amending existing guidance. The new standard is effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently
evaluating ASU 2019-12 but does not believe the adoption of this standard will have a significant impact on its financial statements.
(l) Reverse Stock Split
On
July 31, 2019, the board of directors (the “Board”) and shareholders of the Company approved a reverse stock split
of the Company's common stock at a ratio of one share for every 1.4 shares previously held. All common stock share and per-share
data included in these financial statements have been retroactively adjusted to reflect the reverse stock split.
(3) Fair Value Measurements
The Company measures certain assets and
liabilities at fair value in accordance with ASC 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value as the
price that would be received to sell an asset or paid to transfer a liability (the exit price) in an orderly transaction between
market participants at the measurement date. The guidance in ASC 820 outlines a valuation framework and creates a fair value hierarchy
that serves to increase the consistency and comparability of fair value measurements and the related disclosures. In determining
fair value, the Company maximizes the use of quoted prices and observable inputs. Observable inputs are inputs that market participants
would use in pricing the asset or liability based on market data obtained from independent sources. The fair value hierarchy is
broken down into three levels based on the source of inputs as follows:
Level 1—Valuations
based on unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2—Valuations
based on observable inputs and quoted prices in active markets for similar assets and liabilities.
Level 3—Valuations
based on unobservable inputs and models that are supported by little or no market activity.
Annovis Bio, Inc.
Notes to Financial Statements
(Unaudited)
The following table provides the carrying
value and fair value of certain financial assets and liabilities of the Company measured at fair value on a recurring basis as
of March 31, 2020 and December 31, 2019:
|
|
|
|
|
Fair Value Measurement at
March 31, 2020
|
|
|
|
Carrying Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Cash and cash equivalents
|
|
$
|
11,120,465
|
|
|
$
|
11,120,465
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
Fair Value Measurement at
December 31, 2019
|
|
|
|
Carrying Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Cash and cash equivalents
|
|
$
|
1,858
|
|
|
$
|
1,858
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivative liability
|
|
$
|
106,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
106,000
|
|
The derivative liability was associated
with the March 2019 issuance of convertible promissory notes (see Note 7). The Company computed the fair value at the
date of issuance of $26,500 related to the embedded share settlement feature providing for conversion of the notes at a 20% discount
to the price of the shares issued in a qualified financing. The Company estimated the fair value using a probability weighted approach.
Using the same methodology, the Company determined the fair value of the derivative liability immediately prior to the closing
of the IPO was $132,500 and at December 31, 2019 was $106,000. The change in the fair value of the derivative liability is
reflected in the statements of operations.
(4) Grant Receivable
In September 2019, the Company received
a Notice of Award for a $1.7 million grant from the National Institute on Aging of the National Institutes of Health (the
“NIH”) to cover costs of long-term chronic toxicology studies of ANVS401 in rats and dogs. The Company began the long-term
chronic toxicology studies in November 2019. The Company recorded a grant receivable of $37,752 and $735,075 as of March 31,
2020 and December 31, 2019, respectively, to reflect unreimbursed, eligible costs incurred under the grant.
The Company recognized grant income of $157,438
for the three months ended March 31, 2020 in connection with the NIH grant and received payments under the grant of $854,761 during
the three months ended March 31, 2020.
(5) Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets
consisted of the following:
|
|
March 31, 2020
|
|
|
December 31,
2019
|
|
Prepaid insurance
|
|
$
|
267,272
|
|
|
$
|
—
|
|
Other current assets
|
|
|
5,239
|
|
|
|
—
|
|
Prepaid expenses
|
|
|
4,014
|
|
|
|
4,135
|
|
Security deposit
|
|
|
6,444
|
|
|
|
6,444
|
|
Total prepaid expenses and other current assets
|
|
$
|
282,969
|
|
|
$
|
10,579
|
|
(6) Accrued Expenses
Accrued expenses consisted of the following:
|
|
March 31, 2020
|
|
|
December 31,
2019
|
|
Payroll and related benefits
|
|
$
|
21,482
|
|
|
$
|
131,530
|
|
Accrued interest expense
|
|
|
—
|
|
|
|
36,041
|
|
Accrued professional fees
|
|
|
155,787
|
|
|
|
103,300
|
|
Accrued license payments
|
|
|
517,500
|
|
|
|
506,000
|
|
|
|
$
|
694,769
|
|
|
$
|
776,871
|
|
See Note 8 for further detail on the accrued
license payments.
Annovis Bio, Inc.
Notes to Financial Statements
(Unaudited)
(7) Convertible Promissory Notes
In March 2019, the Company issued convertible
promissory notes (the “Notes”) to various investors in the aggregate principal amount of $530,000. Interest accrued
at 8% compounded annually on all Notes and the maturity date was defined as the earlier of a Liquidity Event or upon the written
demand of the holders of a majority of the outstanding principal amount of the Notes made any time after December 31, 2023.
A Liquidity Event was defined as (i) the date of the closing of a merger or reorganization of the Company with another entity;
(ii) the sale of substantially all of the assets of the Company in which the Company’s stockholders own less than 50%
of the equity securities after the event; or (iii) a liquidation of the Company.
The Company incurred costs of $8,622 in
connection with the issuance of the Notes. In addition, on issuance, the Company recognized a discount associated with the Notes
of $26,500 related to the fair value of an embedded derivative reflecting the share-settlement provision upon the closing of a
qualified financing. Unamortized deferred financing fees and debt discount were deducted from the face amount of the Notes on the
balance sheets. The Company amortized the deferred financing fees and debt discount over the term of the Notes as additional interest
expense using the effective interest method. The effective interest rate on the Notes was 9.8%. The Company made no cash payments
for interest during the three months ended March 31, 2020.
On January 31, 2020, the Company closed
its IPO. In accordance with the terms of the Notes, the outstanding Notes plus accrued interest converted into 118,470 shares of
Company common stock at a 20% discount to the initial offering price of shares issued in the IPO.
(8) Commitments and Contingencies
(a) Leases
The Company leases its office facilities
under a month-to-month operating lease. Total rental expense was $10,479 and $5,712 for the three months ended March 31, 2020 and
2019, respectively.
(b) License Agreements
In November 2008, the Company licensed
the rights to certain chemical compounds, know-how and intellectual property rights that may be suitable for the development of
human therapeutics. Currently, the intellectual property rights are owned by a subsidiary of Horizon Therapeutics, PLC (the “Licensor”).
Payments by the Company under the license agreement include a one-time non-refundable fee of $50,000, a minimum annual commitment
of $40,000 commencing in 2009, milestone payments upon attainment of certain milestone events, royalties based on net sales of
products covered by the patent-related rights and a portion of any sublicense income received by the Company. The Company is responsible
for the development and commercialization of the licensed products.
In May 2012, such license agreement
was amended. The minimum annual commitment was increased to $46,000 and may be deferred by the Company until the Company raises
at least $2 million in equity financing, then the aggregate annual payments of all amounts will become payable. The Company
is currently in discussions with the Licensor regarding the amounts payable under the license agreement.
At March 31, 2020 and December 31,
2019, the Company had accrued $517,500 and $506,000, respectively, in license payments under the term of this license, included
in accrued liabilities, of which no amounts have been paid to date. Expenses related to the license agreement are recognized in
general and administrative expense in the statements of operations.
Annovis Bio, Inc.
Notes to Financial Statements
(Unaudited)
In further consideration for the licenses
granted, the Company shall make the following milestone payments to the Licensor based upon the attainment of each milestone event
indicated below.
Milestone Event
|
|
Amount
|
|
Commencement of Phase II
|
|
$
|
230,000
|
|
Commencement of Phase III
|
|
$
|
575,000
|
|
Filing of an NDA for Regulatory Approval (or equivalent in Europe or Japan)
|
|
$
|
1,150,000
|
|
Receipt of Regulatory Approval in the United States
|
|
$
|
5,750,000
|
|
Receipt of Regulatory Approval outside United States
|
|
$
|
5,750,000
|
|
No milestones have been achieved as of March
31, 2020.
Royalties shall be paid to the Licensor
assessed on net sales of licensed products on a country-by-country basis in an amount equal to 5.75%. Should the Company be required
to obtain a license from a third party in order to sell a licensed product, the Company may deduct 50% of the royalties on such
licensed product paid to the third party subject to certain minimums.
In addition to the royalties the Company
shall pay the Licensor 9.2% of all sublicense income attributable to licensed products.
The Licensor also granted the Company a
buy-out option which may be exercised at any time during the term of the agreement. The option price will be as follows: $500,000
if exercised prior to the commencement of the first Phase II clinical trial; $1,000,000 if exercised on or after the commencement
of the first Phase II clinical trial and prior to the commencement of the first Phase III clinical trial; $5,000,000
if exercised on or after the commencement of the first Phase III clinical trial and prior to the filing of a New Drug Application
(“NDA”) with the U.S. Food and Drug Administration (the “FDA”) for the first licensed product; and $8,000,000
if exercised on or after the filing of an NDA for the first licensed product.
The Company has the right to terminate the
agreement at any time by giving 90 days advance notice subject to the payment of any amounts due under the agreement at that
time. If the Company does not terminate the agreement or exercise the buy-out option, the term of the agreement shall continue
until the expiration of the Company’s obligation to make royalty payments. Such royalty payments continue for each product
in each country until the later of the expiration of the related patent or 10 years after the initial sale of the product in the
respective country. The agreement may also be terminated for cause by either party upon the breach of the material obligations
of the other party or the bankruptcy or liquidation of the other party.
(c) Employment Agreements
In March 2020, the Company entered
into employment agreements with its executive officers. The maximum aggregate severance payments under the agreements are approximately $720,000.
(d) Litigation
The Company is subject, from time to time,
to claims by third parties under various legal disputes. The defense of such claims, or any adverse outcome relating to any such
claims, could have a material adverse effect on the Company’s liquidity, financial condition and cash flows. At March 31,
2020 and December 31, 2019, the Company did not have any pending legal actions.
(9) Redeemable Convertible Preferred Stock and Stockholders’
Equity
(a) Overview
The Company closed its IPO on
January 31, 2020, issuing 2,300,000 shares of common stock. In connection with the closing of the Company’s IPO,
the then-outstanding 5,133,159 shares of Series A and 630,722 shares of Series A-1 redeemable convertible preferred stock
converted into an aggregate of 4,117,089 shares of Company common stock. Each share of redeemable convertible preferred stock
was converted into the number of shares of common stock determined by dividing the original issue price by the applicable
conversion price. The Series A-1 conversion price was $1.26, and the Series A conversion price was $0.70, as
adjusted for the reverse stock split discussed in Note 2.
Annovis Bio, Inc.
Notes to Financial Statements
(Unaudited)
The Company’s Amended and Restated
Certificate of Incorporation was adopted on January 31, 2020 to authorize the issuance of two classes of stock to be designated,
respectively, common stock and preferred stock. The total number of shares which the Company is authorized to issue is 37,000,000,
each with a par value of $0.0001 per share. Of these shares, 35,000,000 shall be common stock and 2,000,000 shall be preferred
stock.
(b) Common Stock
Subject
to the rights of holders of all classes of Company stock outstanding having rights that are senior to or equivalent to holders
of common stock, the holders of the common stock are entitled to receive dividends when and as declared by the Board.
Subject to the rights of holders of all
classes of stock outstanding having rights that are senior to or equivalent to holders of common stock as to liquidation, upon
the liquidation, dissolution or winding up of the Company, the assets of the Company will be distributed to the holders of common
stock.
The holders of common stock are entitled
to one vote for each share of common stock held. There is no cumulative voting.
(c) Preferred Stock
Preferred stock may be issued from time
to time by the Board in one or more series.
(d) Warrants
In conjunction with the IPO, the Company
granted the underwriters 100,000 warrants to purchase shares of Company common stock at an exercise price of $7.50 per share, which
is 125% of initial public offering price. The warrants have a five-year term and are not exercisable prior to January 29, 2021.
All of the warrants were outstanding at March 31, 2020 and the Company accounts for the warrants as a component of stockholders’
equity.
(10) Share-Based Compensation
Effective
upon the closing of the Company’s IPO on January 31, 2020, the Company’s 2019 Equity Incentive Plan (the “2019
Plan”) became effective, succeeding the Company’s previous plan (see Note 1). Under the 2019 Plan, 1,000,000 shares
are authorized to be issued and no new options may be issued under the previous plan, although shares subject to grants which are
cancelled or forfeited will again be available under the 2019 Plan. As of March 31, 2020, 1,001,283 stock options were available
for future grants.
Share-based compensation expense
for the three months ended March 31, 2020 and 2019 was $0 and $8,859, respectively.
There were no options issued during the
three months ended March 31, 2020 and 2019. As of March 31, 2020, and December 31, 2019, there were 324,996 and 352,282 options
outstanding, respectively, all of which were vested and exercisable.
Annovis Bio, Inc.
Notes to Financial Statements
(Unaudited)
(11) Net Loss Per Share
The following table sets forth the computation
of basic and diluted net loss per share:
|
|
Three Months Ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Numerator
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(441,590
|
)
|
|
$
|
(190,903
|
)
|
Denominator
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding, basic and diluted
|
|
|
4,599,469
|
|
|
|
282,614
|
|
Net loss per share, basic and diluted
|
|
$
|
(0.10
|
)
|
|
$
|
(0.68
|
)
|
Annovis Bio, Inc.
Notes to Financial Statements
(Unaudited)
The Company reported a net loss for the
three months ended March 31, 2020 and 2019, therefore, the basic and diluted net loss per share are the same for both periods because
the inclusion of potential common shares would have an anti-dilutive effect. Potential shares of common stock that are excluded
from the computation of diluted weighted-average shares outstanding are as follows:
|
|
Three Months Ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Redeemable convertible preferred stock, as converted
|
|
|
-
|
|
|
|
4,117,089
|
|
Stock options
|
|
|
324,996
|
|
|
|
353,565
|
|
Warrants
|
|
|
100,000
|
|
|
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In addition, common shares issuable upon
the conversion of the $530,000 Notes were excluded for all periods in which the Notes were outstanding.
(12) Income Taxes
The Company’s income tax benefit (expense)
was $0.0 million for the three months ended March 31, 2020 and 2019. The Company has recorded a valuation allowance to reduce
its net deferred tax asset to an amount that is more likely than not to be realized in future years. Accordingly, the benefit of
the net operating loss (“NOL”) that would have been recognized in the three months ended March 31, 2020 and 2019 was
offset by changes in the valuation allowance.
On March 27, 2020, the Coronavirus Aid,
Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among
other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. Previously,
NOLs generated after December 31, 2017 were limited to 80% of taxable income in future years. In addition, the CARES Act allows
NOLs incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously
paid income taxes. The NOL carryback provision of the CARES Act had no impact on the Company due to its tax losses generated during
all prior years.
Net operating loss and tax credit carryforwards
may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant
stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue
Code as well as similar state provisions. The Company has completed financings since its inception, including its January 31, 2020
IPO, which may have resulted in a change in control as defined by Sections 382 and 383 of the Internal Revenue Code or could
result in a change in control in the future.
As of March 31, 2020, and December 31, 2019,
the Company had not recorded any liability for uncertain tax positions, accrued interest or penalties thereon and no amounts have
been recognized in the Company’s statements of operations.
(13) Related-Party Transactions
As discussed in Note 7, in March 2019
the Company issued Notes in the aggregate principal amount of $530,000. Three of the Company’s directors purchased an aggregate
of $305,000 of the Notes. On January 31, 2020, the Company closed its IPO and the outstanding Notes plus accrued interest
held by directors converted into 71,429 shares of Company common stock.
(14) Subsequent Events and Impact of COVID-19 Pandemic
The clinical
trial sites participating in the Company’s Phase 2a trial in AD patients in collaboration with the Alzheimer’s
Disease Cooperative Study have temporarily suspended enrollment of new patients because of the ongoing COVID-19 pandemic.
Prior to suspension of enrollment, 14 patients had been enrolled and completed treatment, out of a total trial size of 24
patients. Although the Company currently believes its clinical trials will be completed on time, the extent to which the
COVID-19 pandemic could have a material impact on the clinical trials is dependent on the spread of the disease and
government and healthcare system responses to such spread, which are presently highly uncertain.
On
April 9, 2020, the Company granted options to purchase 600,000 shares of common stock at an exercise price of $3.13 per
share to the executive officers of the Company. Under the grant agreements, 550,000 of the options were vested and exercisable
as of April 9, 2020 and 50,000 of the options vest on April 9, 2021, provided the executive officer is employed by the Company
at such time. These options have a 10-year term.